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Hunting Uranium in Argentina – A Play on Integration

While many countries are in retreat from an energy source they hate to need, Argentina without any fanfare is adding a third reactor to its existing two reactors. Frankly, once again Argentina shows it has the best infrastructure in Latin America. That the legacy of past investment is badly managed and frequently neglected is undoubted but the country has been ahead of the pack since the 1920s, got an overhaul in the 1990s and has spent most of the last ten years backsliding (except in nuclear).

Argentina has also been active in nuclear power generation & research and uranium mining since the middle of last century. Some 10% of current electricity needs are met from nuclear power stations in the country. The Comisión Nacional de Energía Atómica (CNEA – Atomic Energy Commission) was set up in 1950 to oversee nuclear R&D, including construction of several research reactors. Currently, five research reactors are operated by CNEA and others. Another is planned, similar to the Opal reactor built in Australia by Argentina’s INVAP. An example of the country’s membership of the front ranks of nuclear technology nations is that Argentina’s CAREM small modular reactor design is under consideration for massive desalination projects in Saudi Arabia. Just this week, the first concrete was poured, marking the start of construction of Argentina’s CAREM-25 reactor, a 25 MW small modular reactor (SMR) of which there are similar SMR projects elsewhere in the world, such as in the US, UK, Japan and South Korea.

Uranium explorers have come and gone in Argentina but that is less a reflection on the prospectivity or even Argentina than on the fate of Uranium prices in recent years which have been buffeted by ill-fortune on a regular basis.

One thing we noted many moons ago was that if a company like Wealth Minerals (TSXV: WML) could turn up in Argentina and in relativity short order have 11 deposits under its belt then prospectivity was certainly not in doubt.

The four players that are still active (and we use that word with generosity) are Blue Sky Uranium, U3O8 and the ASX-listed Cauldron Energy.

Blue Sky Uranium (TSXV: BSK) is a uranium exploration company with more than 5,000 km2 (500,000 ha) of tenements. Its mission is to acquire, explore, and advance a portfolio of uranium projects with an emphasis on surficial deposits, and management is focused on advancing its new uranium discoveries.

The most interesting thing about Blue Sky is that it appears to be AREVA’s anointed partner in Argentina. In January 2012, BSK announced that the company had entered into a Memorandum of Understanding with the French uranium giant, AREVA Mines, to jointly explore Argentina for uranium deposits.

The focus of exploration is within the San Jorge Basin of Rio Negro Province where Blue Sky is working on its Anit, Ivana and Santa Barbara projects and is permitting several new targets within the region to develop the district wide potential. The region is flat lying, located at an elevation of approximately 200 metres, has an annual rainfall of less than 300 mm, semi-arid environment, very low population density, and allows round exploration via well maintained gravel road access.

Cauldron Energy (TSXV: CXU) controls a suite of uranium projects that are diversified in terms of stage of development and location between Australia and Argentina. The Rio Colorado (Uranium-Copper-Silver) project is located in the Tinogasta region of the Catamarca and La Rioja provinces in Argentina. It covers an area of 762 km2 with a substantial deposit outcropping for 16km, containing numerous small scale workings completed by the CNEA in the 1950’s and 1960’s.

The Las Marias (uranium only) project has a seven kilometre long unit of outcropping uranium rich sandstones, including visible uranium oxide minerals, has been identified using hand-held geophysical equipment. Scintillometre readings of the leached surface material indicate a range typically between 100 to 550 ppme U3O8, with a maximum reading of 1,300 ppme U3O8.

This project was explored by the CNEA in the 1970’s. At the moment the Argentine uranium assets do not even appear to be on the company’s “to do” list.

U308 (TSX: UWE | OTCQX: UWEFF) has assets in Argentina and Colombia. Its Argentine assets had their genesis in Mega Uranium (TSX: MGA), which divested the assets to U3O8 when Mega narrowed down its focus several years ago.

The most advanced of these Argentine projects is the Laguna Salada Project in Chubut Province, which is a surficial uranium-vanadium deposit on which an NI43-101 resource with an Indicated resource of 6.3 mn lb and Inferred of 3.8 mn lb at 85 ppm of U3O8. To this must be added the Indicated vanadium resource of 57mlb V2O5 and Inferred resource of 27 mn lb V2O5. A positive feature is that mineralization occurs within three metres from surface in soft, unconsolidated gravel that should be amenable to low-cost mining techniques with no blasting and crushing required.

The company claims that, with its Argentine deposit, it has a “nicely sequenced approach” where U3O8 could move firstly its Argentine deposit towards production (ideally with a partner like Cameco who is active in the region) while it develops the Colombian deposit which is larger-scale, but also with a very low cost uranium production profile. U3O8 published a positive PEA early in 2013 on its Colombian deposit, which shows revenue from by-products could pay for extracting the uranium. In an interesting sideline the company has optioned out 100 hectares of one of its Argentine properties for the production of fracking sands upon which it will be receiving a 7.5% gross royalty..

U3O8 are by far the most advanced and most serious group playing the Argentine radioactive minerals sandbox. The presentation of a realistic plan to the Argentine government on possible production that will be both import replacing and free the country from outside pressures (the evermore interventionist US, for example) could be just the right balance to give a mine build CNEA approval. This would make the acquisition of U3O8 by a major into a logical, derisked transaction for the major.

Conclusion: To derisk a uranium development story these days the best logic is to search for a uranium property in a natural market. Clearly Argentina is a natural market with an existing nuclear power plant fleet that is currently under expansion and yet no indigenous mine production of Uranium. What should be an ideal investing environment is clouded by the generalized negativism towards Argentina. This ongoing bad vibe, perversely, is justified by political and financial events but NOT by mining events because the government in Argentina remains pro-mining. It has long been the case that some provincial governments have followed a more erratic attitude to mining in their bailiwicks. So the ideal uranium development story in Argentina is one in a pro-mining province and at some distance from any substantial settlement. Few miners dabbling in the Argentine space though appear to have cottoned on to the possibilities presented by making themselves an integral part of the revived nuclear power program in Argentina.

Negotiating concessions and even obtaining funding (helped by giving the Federal government some participation) could go some way towards mitigating the current hostility from capital markets towards funding uranium exploration ventures. A key factor though must be credibility, for as we have noted many uranium companies are as prone as Rare Earth companies were towards pursuing solely the concept of proving up a resource and not developing it, and that in no way moves the Argentine nuclear energy industry towards vertical integration. ONLY those intent upon development and production in the short term can hope to create a real dialogue.

The goal is not to point out winners and losers but rather to illuminate to investors that in Argentina there is a real prospect of a self-supporting uranium industry evolving. There would appear to be a compelling logic for a coherent mine to generator vertical integration in the Argentine nuclear industry with the only thing lacking is a project advanced enough to capture the government (and CNEA’s) imagination to make this happen. The four companies we cover here have pushed ahead despite the odds stacked against the uranium mining space and negative sentiment on Argentina in general. At this point U3O8 and Blue Sky would look to be the most serious contenders.

(+) The country has an aggressive nuclear expansion campaign, from an existing base of several reactors

(+) Public opposition to nuclear power is almost non-existent and the country has an energy shortage

(+) At least at first glance most U-mining could be done open-pit, which is cheaper but open-pit mining has gleaned opposition in the past in other metals in Argentina

(+) Greens are small in number in Argentina and distant from the locations where uranium might be mined

(+) A turnover in the political sphere could lower labour and other mining costs from their current high level

(-) A mine owned by the government has encountered opposition from some quarters but government has not really pushed the issue

About Christopher Ecclestone

Christopher Ecclestone is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten & Company in New York in2003 he was the head of research at an economic thinktank in New Jersey which he had joined in 2001. Before moving to the U.S., he was the founder and head of research at the esteemed Argentine Equity research firm, Buenos Aires Trust Company, from 1991 until 2001. He worked in London from 1985-1991 as a corporate finance and equities analyst and as a freelance consultant on the restructuring of the securities industry.

This was a great article. Not going to lie, had to read it twice as I am not an expert in uranium nor a seasoned investor in the same.Really appreciated the in-depth information and analysis and appreciate that you are willing to name companies worth looking at. Thanks, really enjoying your contribution on InvestorIntel.

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